Which pre-October 2, 1984 Texas parking contracts qualified for the prior-contract sales-tax exemption?

Plain-English summary

The Texas Comptroller explained the temporary prior-contract exemption for parking under H.B. 122 and Tax Code § 151.339(3). No advance notice to the Comptroller was required, but the contract had to be available for audit.

To qualify, the parking contract had to be executed by October 1, 1984, with definite terms and a fixed price or a price ascertainable by criteria outside the parties' control. An unaccepted offer or unelected option did not qualify. A pre-cutoff renewal option qualified only if exercised before October 2, 1984.

Renegotiation generally ended the exemption unless the price remained fixed or tied to an ascertainable market measure. An amendment unrelated to parking did not end it. Assignment transferred the original tenant's rights, but a sublease was a new contract and gave the subtenant no inherited exemption.

No contract remained exempt after September 30, 1987. The taxable parking sales price included maintenance, utilities, and other fees attributable to parking, whether separately stated or not.

For contracts executed before July 1, 1984, the Comptroller conclusively accepted a separately stated parking allocation. The letter did not resolve allocation for contracts beginning July 1, 1984 that offered free parking, stated no parking amount, or used nonmarket charges; it said a position would follow later.

What this means for you

Parking operators and landlords

The historical exemption depended on execution date, definite terms, price mechanics, and who consumed the parking. Records had to be audit-ready.

Tenants and subtenants

A business tenant providing parking free to employees or customers was the parking consumer. Charging them made the tenant a parking retailer. An assignee inherited rights, but a subtenant did not.

Accountants and tax professionals

Do not infer the missing allocation rule for free or unstated parking. This letter expressly left that issue for later guidance.

Common questions

Q: Was advance notice required to claim the exemption?
A: No, but the contract had to be readily available for a Comptroller audit.

Q: What was the execution deadline?
A: October 1, 1984. Offers accepted or options exercised after that date did not qualify.

Q: Could the exemption last for the full term of a longer lease?
A: No. It ended no later than September 30, 1987.

Q: Did an assignment preserve the exemption?
A: Yes. A sublease did not transfer the original tenant's prior-contract benefit to the subtenant.

Q: Were maintenance and utility charges excluded from taxable parking receipts?
A: No. Charges attributable to parking were included in the parking sales price.

Citations and references

• H.B. 122, Tex. Tax Code § 151.339(3) (prior-contract exemption, as cited in the letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8412L0621B05

Original ruling text

December 11, 1984

RE: Sales tax on parking

Dear ***:

This letter is in response to your request for our sales tax opinion on
certain contracts for parking. We understand that these represent a
small number of your various client's contracts and you may extrapolate our
response.

We are considering proper allocation between non taxable office rental and
taxable parking rental when they occur together. For contracts executed prior
to July 1, 1984, when H.B.122 was passed, we will conclusively presume the
allocation stated in the contract is correct if parking rental has a separately
stated price. Since this covers most of your contracts the remainder of this letter
will answer most tax questions.

For contracts executed beginning July 1, 1984 which contain "free" parking
space rental or no separately stated parking space rental amount or stated
charges not reflecting market values, we will decide shortly how to allocate the
charges between taxable and nontaxable amounts and whether taxable rental should be
imputed. With these qualifications, the first question concerns prior contracts.

This office will not require prior notification as a condition to qualify for the
prior contract "grandfather" clause in H.B.122, Section 151.339(3). However, any
contract for which the prior contract exemption is claimed must be readily available
to a Comptroller auditor should verification be requested in the future. The following
will be required to qualify for the prior contract exemption.

1. The contract must be executed on or before October 1, 1984. An offer not accepted
   or an option not elected before October 2, 1984 will not qualify.

2. A contract which has an option to renew will qualify for the original period of
   the contract signed before October 2, 1984 or for any option elected before October 2,

3. An option to terminate prior to expiration of lease does not obviate the lease
   term or prior contract exemption.

4. The contract must be definite as to price and terms.

5. The price must be fixed or ascertainable by criteria not controlled by parties to
   the contract. "The stated contract price shall be adjusted annually in proportion to
   the change in the Consumer Price Index published by" would be acceptable. "Price shall
   be adjusted annually to reflect the then current market price" would also be acceptable.
   "Price to be negotiated in future" would not be acceptable.

6. A contract with a definite price on October 1, 1984 but which is later subject to
   or actually is renegotiated retains the prior contract exemption only until either
   circumstance occurs unless the price is fixed or set at an ascertainable market price.

7. An amendment of contract after October 1, 1984 which doesn't change or effect terms
   related to parking will not effect prior contract exemption.

8. The prior contract must be with the party "consuming" the parking. A business tenant
   purchasing office space and parking and providing the parking to its employees or
   customers free is the consumer of the parking space. However, if the business tenant
   charges its employees or customers for the parking then that tenant would be retailer
   of parking to the buyer/consumer. The buyer might be eligible for the prior contract
   exemption but only if he qualified under the other provisions listed in this letter.

9. The prior contract exemption does not exempt beyond September 30, 1987 regardless
   of the length of the contract.

In addition to the prior contract exemption there are other considerations. Sales price
is a broad inclusive term and includes all charges attributable to the parking charges
whether separately stated or not. This would include maintenance, utilities or any other
fees payable by the user to the provider for the parking.

With this in mind, I will give my opinion on some of your submitted contracts. I will
assume that business tenant is consumer and that parking is not being resold.

Lease term-was not included in original contract. If amendment was executed by October 1,
1984, it would control.

Free rent and parking for twelve months not taxable. Also, twenty one spaces are not
taxable, after rental payments commence, through September 30, 1987. Additional spaces
will be exempt for the same period to the extent acquired prior to October 2, 1984 under
lease option.

The taxable amount will be as specified in the lease for parking spaces not exempted above.
The contract is not complete concerning "base rental" so I cannot express an opinion on
whether parking charges are $*** per space per month ($** for
executive spaces) or $**** plus additional charges:

PARKING A/COMPANY A June 1, 1983

The same terms above apply here. Even though the $*** per space price may be
adjusted annually to market value, prior contract exemption continues.

Once again, I am not sure whether there are additional charges to the "Basic Parking
charge."

PARKING B/COMPANY B January 20, 1983

Same as above where applicable. I note that twelve spaces appear to be exempt "for
the initial term of the lease" not extending beyond September 30, 1987 and additional
spaces leased before October 2, 1984 will be similarly exempt. Of course spaces optioned
after October 1, 1984 will be taxable from inception.

PARKING C/COMPANY C May 30, 1980

An assignee will inherit the same rights regarding sales tax as assignor. A sublease,
however, would be a new contract and the Subtenant would inherit no prior contract sales
tax benefits from the original tenant. The original tenant would not lose any prior
contract benefits should the sublease later cease.

PARKING D/CORP ABC February 14, 1977

The Base Rental Adjustment would not make price nonascertainable.

Some of the remaining contracts provided "free" parking or didn't separately state a
price. We will mail our position on those as soon as possible.

The above guidelines should answer your questions on the nondiscussed contracts but
please feel free to telephone if you want to discuss a specific question.

Sincerely,

Tax Policy Division